State Bank of Pakistan keeps policy rate unchanged

The State Bank of Pakistan, wary of a rise in inflation due to the devastation caused by the floods in many parts of the country, has kept its key policy rate unchanged at 10 per cent for the next two months.
In a statement today, the central bank said the policy rate would remain unchanged at 10 percent, which has been the rate since November, 2013.
Although the Pakistani rupee has remained mostly stable as the country has built its foreign exchange reserves but the recent floods have caused a lot of devastation in Punjab, Khyber Pakhtunkhawa and Sindh provinces.

Experts have said lot of damage has been caused to crops like cotton, sugarcane, rice and livestock and this could eventually push inflation higher in the next few months.
Trade and industry analysts say there is a need for a revision in policy rate because of the single-digit inflation.
The devastation caused by these floods are expected to be felt from November onwards.

"We will know the true impact it is going to have on our economy", Shakeel Ahmed of Capital security inc said.
He pointed out that the food basket in CPI has large weightage and may change the declining trend.

But he said there should be no change in the discount rate.
Another analyst at Topline securities said that the central bank may have been forced to keep the interest rate unchanged as till recently the uncertain political scenario had put pressure on the exchange rate and this led to increasing demand and low supply of the greenback.
Shakeel said that the central bank's decision was also influenced by the fact that a IMF tranche was pending.
The IMF has asked the government to raise electricity and gas tariffs but with the political uncertainty in the country due to the sit-ins and protests of Imran Khan and Dr Tahir ul Qadri, the government is yet to a take a decision in this regard.

Imran who heads his Pakistan Tehreek-e-Insaaf party, during the sit in, has dubbed the government's economic policies as being subservient to the IMF and putting all the load of loan interests on the poor masses.